Method of Net Present Value (NPV)

The method of Net Present Value (NPV) is one of the most common, widely-used methods and one of the most important way upon which the decision-making tree will be displayed later.

It is important to identify the lifetime of the project and the cash flow during the years of the project from its the beginning to the end of the project’s life time.

To calculate the equation by the current value, one must specify the discount rate, which is given by the following equation:

Year

Discount Rate

Net Cash Flow

Net Present Value

0

1.0

-51785

-51785.00

1

0.909

20000

18181.80

2

0.826

20000

16528.80

3

0.7513

20000

0015026.20

4

0.683

20000

13659.00

NPV

11610.80

Table 3.6 Net present value calculation

Method of Net Present Value (NPV)
Подпись: NCF„ (1 + D)" '
Подпись: (3.5)

where n is the number of years, and D is the discount rate that is equal to the value of the interest rate.

The following example illustrates the NPV calculation in the suit, in which the imposition of the discount rate is equal to 10%.

As an example, calculating the net present value is shown in Table (3.6).